Parsonage

Parsonage Eligibility Requirements 

Parsonage allowance, also referred to as housing allowance, is one of several special tax benefits applied to qualified ministers. This benefit permits a qualified minister to exclude from taxable income the portion of compensation, designated by the employer, as a "parsonage allowance" and actually expended by the minister for qualified housing costs. To be eligible for a parsonage allowance, a minister must satisfy four basic requirements established by the Internal Revenue Service regulations:

1. The individual must have "ministerial status," that is, the minister must be duly ordained, licensed, or commissioned as a minister, as defined by the IRS.
2. The individual with ministerial status must be performing primarily "ministerial services," as defined by the IRS.
3. The employing church or other qualifying organization must designate in advance of receipt a specific amount of the individual's compensation as a parsonage allowance.
4. The individual, if otherwise qualified, may exclude only that portion of the designated parsonage allowance actually expended for qualified housing costs as recognized by the IRS.
5. The individual must work 20 hours a week or more.

Designation of Parsonage Allowance

According to the IRS, there are three factors taken into account when determining a parsonage amount:

1. Actual housing expenses - The IRS may require receipts as verification of actual housing expenses in a personal tax audit.
2. Fair Rental Value - If you own your residence, you must also fill out the Fair Rental Value calculation found in the Fair Rental Value section of the Parsonage Request Form. Your parsonage allowance may be affected by your home's reasonable Fair Rental Value (FRV).
3. The amount designated by the organization - Reliant will not allow parsonage allowances that are greater than the minister's net pay after any pre-tax deductions and taxes. Pre-tax deductions include items such as short-check, HSA and 401(k) Contributions, and other benefit costs. Reliant will also not allow parsonage allowances that are greater than the FRV of your residence (if you own it). 

Please use the Form below to calculate and request a parsonage allowance based on the above restrictions. Parsonage amounts are reviewed and approved Reliant's Director of Organizational Affairs and Treasurer, and shall continue at that amount until a new Parsonage Request Form is submitted and approved. Should the minister's actual housing expenses change during an interim period, the minister may request that Reliant designate a new amount that more accurately reflects the minister's actual housing expenses. Requests for re-designation of parsonage allowance must also be made using Parsonage Request Form. 

Parsonage Request Form

Parsonage Request Form

Federal Tax Filing Information

It is the minister who must determine whether to claim an exclusion from taxable income on his or her annual tax return for a parsonage allowance, and therefore bears ultimate legal responsibility for that decision. Reliant ministers who believe that they may be eligible for the parsonage allowance and wish to request that Reliant designate a portion of their annual compensation as a parsonage allowance must submit a Parsonage Request Form to the Employment Services Department. Ministers are strongly advised to consult with a personal tax advisor before claiming the parsonage allowance exclusion.

The following actions should be taken by the Reliant minister during the year (after the parsonage allowance is granted).

• The minister should keep records and receipts of allowable housing expenses they incur throughout the year.
• The minister should track how much parsonage allowance they have received compared to the actual allowable housing expenses they have incurred.
• The minister should update their Parsonage Request Form to increase or decrease the amount of parsonage they're receiving when their year-to-date allowable housing costs are significantly different than the parsonage amount they have been receiving.
• When filing their taxes, any excess parsonage allowance paid to the employee, should be shown as income on Form 1040 (see the Zondervan Minister's Tax Guide https://www.fcmmbenefits.org/ministers-tax-and-financial-guide-2023-2022-returns for additional details of this process). 

Important Implications and Restrictions of Parsonage when Buying/Refinancing a Home

• Mortgage lenders require parsonage (housing allowances) be verifiable and reliable income. Each mortgage lender applies its own guidelines when considering housing allowances. Some mortgage lenders may not include an applicant's housing allowance income simply as a matter of lending policy.

• Before applying for a mortgage, ask the lender if it considers non-traditional income, such as the parsonage (housing allowance) income you're paid. * If your parsonage (housing allowance) income is stable and consistently paid, with a verifiable track record of payment, a mortgage lender usually will count it as income.

• FHA loan lending restrictions - Parsonage may be considered as qualifying income for a FHA loan if there is documentation that the income has been received for the most recent 12 months and the allowance is likely to continue for the next three years. *Reliant may be able to provide a letter (upon request) stating we are an "at will" employer but to the best of our knowledge an employee is stably employed and eligible to receive the Ministers housing allowance in to the future.